Enabling ASEAN's Economic Vision

At 40 years of age, the Association of Southeast Asian Nation
(ASEAN)--which encompasses the five original member countries of
Indonesia, Malaysia, the Philippines, Singapore, and Thailand and
the newer member countries of Brunei, Cambodia, Laos, Burma, and
Vietnam--is the oldest and largest organization of its kind in
Asia. ASEAN countries have a combined population of more than 500
million people--larger than the population of the European Union.
Their combined gross domestic product (GDP) exceeds $1 trillion,
which is the 11th largest in the world, ahead of Russia and
India.[1]

ASEAN has committed itself to making the most of its collective
strength by achieving an integrated, lib­eral market. Ten years
ago in Kuala Lumpur, ASEAN launched ASEAN Vision 2020, which calls
for creat­ing "a stable, prosperous and highly competitive
ASEAN Economic Region in which there is a free flow of goods,
services and investments, a freer flow of capital, equitable
economic development and reduced poverty and socio-economic
disparities."[2] This is ASEAN's guiding economic vision. It
is echoed throughout ASEAN documents, including the new ASEAN
Charter.

Despite its pledges, however, economic integration remains more
aspiration than reality. Today, ASEAN is not a single integrated
market. It is 10 separate mar­kets that are no more
economically integrated with each another than they are with
economies outside of ASEAN. Intra-ASEAN trade accounts for only
about 25 percent of its global trade.[3] Intra-ASEAN foreign direct
investment (FDI) amounts to 11 percent of total FDI into ASEAN.[4]

Even these figures give an inflated picture of the current state
of economic integration, because not all ASEAN countries contribute
equally. For in­stance, Singapore, which has a world-class
econ­omy, contributes far more to intraregional trade and
investment than less-developed Laos contributes.

The measure of ASEAN's integration is not only intraregional
trade and investment flows, but also its attractiveness as an
investment destination. From the 1992 launch of the ASEAN Free
Trade Area (AFTA) to the signing of its Economic Community
Blueprint in November 2007, achieving economy of scale in ASEAN has
always meant attracting greater levels of foreign investment. Yet
even as it has sought ever new ways to stay competitive as a
region, it has lagged behind market-leader China-- particularly
since the 1997 Asian financial crisis. (A few years prior to the
crisis, ASEAN actually led China as an investment destination.)

It has been famously said that what East Asian economic
integration needs now is management, not vision.[5] While ASEAN's
dizzying array of agree­ments, initiatives, and commitments
clearly lacks adequate management, ASEAN's vision is also
unre­solved. The member countries' less-than-resolute
commitment to free markets contributes directly to the management
problem. It forces ASEAN to pur­sue a lowest-common-denominator
path to integra­tion that leaves it short of its ambitious
economic goals. True commitment to economic freedom would ease
integration by eliminating obstacles and feeding the market forces
that are responsible for whatever real cross-border economic
activity is tak­ing place.

The ASEAN countries need to decide that ASEAN Vision 2020 is
where they want to go, make the difficult choices at the national
level that are required to achieve that vision, and exercise the
necessary political will to follow through. With the right level of
commitment, managing ASEAN economic integration will become easier,
and an integrated, liberal East Asian market will become a
reality.

Managing ASEAN Economic
Integration

ASEAN's integration machinery is unique. Each year, official
summits produce new initiatives aimed at furthering economic
integration. Some initiatives are cursory and self-executing. Many
are detailed and aimed at fulfilling previous commitments. Taken
together, the scale of the planned restructur­ing of the
regional economy is extraordinary, and the task of managing it is
massive.

To ease implementation and provide a rationale commensurate with
its challenges, in 2003, ASEAN brought all of these efforts under
the one conceptual roof of ASEAN Economic Community.

ASEAN Economic Community. ASEAN has identified its effort
to establish "a single market and production base" through the
"free flow of goods, ser­vices, investment and a free flow of
capital"[6] with the explicit goal of achieving an
"economic community."

It has since accelerated the timetable for comple­tion from
2020 to 2015 and developed detailed implementation plans. The ASEAN
Economic Community (AEC) is intended to strengthen exist­ing
agreements--principally the ASEAN Free Trade Area, the ASEAN
Investment Area, and the ASEAN Framework on Services--and to
accelerate integra­tion in priority sectors.[7] ASEAN's progress in
man­aging ASEAN economic integration must begin with an
assessment of these agreements and their economic impact.

ASEAN Free Trade Area. By far ASEAN's most successful
effort toward building a competitive economy of scale has been the
ASEAN Free Trade Area (AFTA). AFTA was signed in 1992 and is
largely on track. The ASEAN-6 include ASEAN's major national
economies--Indonesia, Malaysia, the Philippines, Singapore, and
Thailand--as well as Brunei.

The ASEAN-6 have reduced tariffs to from 0 per­cent-5
percent on nearly 99 percent of the products covered under AFTA and
are moving toward full tariff elimination by 2010. As of August
2007, the ASEAN-6 had eliminated tariffs on more than 70
percent of the products covered by the AFTA.[8] (For these
econo­mies, almost all of their trade in goods is covered.)[9] The
lesser developed ASEAN countries are on a slower schedule but are
also making respectable progress. Laos and Burma must reduce
tariffs to the 0 percent-5 percent range by 2008, and Cambodia must
do so by 2010. They and Vietnam are then obliged to eliminate
tariffs completely by 2015.[10]

Coverage and compliance are good. However, when it comes to
actual trade, AFTA is not fully uti­lized for a number of
reasons. Its broad benefits are brought to bear on only 5 percent
of intra-ASEAN trade. So while ASEAN can claim double-digit growth
in intra-ASEAN trade,[11] it cannot claim that the increases are
driven by AFTA. In fact, even with­out applying AFTA, the
amount of trade among ASEAN countries is rising no faster than
ASEAN's trade with the rest of the world.[12]

Underutilization of AFTA points to several key problems. The
application procedure for AFTA is unclear and not well publicized.
More important, the marginal savings over the standard
most-favored-nation rate is often not sufficiently greater than the
processing cost. It is simply not worth the trouble to apply.

This points to a fundamental problem: ASEAN's low-ball
definition of free trade and slow schedule for tariff elimination.
ASEAN's interim tariff level of 5 per­cent is above the tariff
rates to which industrialized countries are committed under the
Uruguay Round.[13] Where the tariff reductions under AFTA
are significant, non-tariff barriers (NTBs) often remain. This
makes NTBs a major obstacle on ASEAN's road to economic
integration. The organization's efforts to remove them have been
largely ineffectual.[14]

Finally, a clear, trusted, effective mechanism for addressing
non-compliance is a necessary part of any trade agreement. ASEAN
has a dispute settle­ment mechanism with application to AFTA
commit­ments, but it has never been used.

ASEAN Framework Agreement on Services. In 1995, ASEAN
launched the ASEAN Frame­work Agreement on Services (AFAS) to
"eliminate substantially restrictions to trade in services" by
going beyond General Agreement on Trade in Ser­vices (GATS)
commitments to achieve a "free trade area in services."[15]
There have been six packages of commitments under the AFAS. To ease
implementation, ASEAN has employed its ASEAN-X mechanism, which
means that coun­tries ready to move forward with new
commit­ments may do so without the immediate participation of
all ASEAN members.

AFAS implementation has been slow and uneven. On balance, more
than 10 years since the agreement was signed in Bangkok, "member
coun­tries' commitments have not been significantly bolder and
more far-reaching" than their commit­ments to liberalize under
GATS.[16] While intra-ASEAN barriers to trade in
services have fallen for every ASEAN country and are now 10 percent
lower for intra-ASEAN trade than for countries out­side ASEAN,
Singapore and Malaysia, the two big­gest providers of services
in ASEAN, provide no substantial benefit to their ASEAN neighbors
above their global GATS commitments.[17]

Beyond this structural problem, AFAS has been hampered by the
poor quality of regulations, lack of proper governance, and
unpredictability.[18] Trans­parency requires more than
posting commitments on ASEAN's Web site, which it does to its
credit. It means that commitments should not be subject to ongoing,
unpredictable modification and that infor­mation on new
policies, laws, and regulations should be made generally available
for comment before they are enforced.[19] ASEAN is not meeting this
standard.

The ASEAN Investment Area. In 1995, ASEAN endorsed
investment liberalization as a basis for enhancing its collective
"attractiveness and compet­itiveness" for investment. In 1998,
it followed through on this mandate by creating the ASEAN
Investment Area (AIA).[20] The AIA declared an "immediate opening up
of all industries for invest­ment, with some
exceptions...to ASEAN investors by 2010 and to all investors
by 2020." It also declared "immediate national treatment" on the
same schedule.[21]

The agreement is in effect more modest. It covers five economic
sectors--manufacturing, agriculture, fisheries, mining, and
quarrying--and services inci­dental to these sectors. This
excludes two-thirds of the most attractive areas for FDI from the
outset.[22]

Still, the AIA is an important part of realizing ASEAN's
economic vision. The devil is in the excep­tions. The member
countries drew up the lists of exceptions, some of which were to be
phased out. For instance, Brunei, Indonesia, Malaysia, Myanmar
(Burma), the Philippines, Singapore, and Thailand had until January
1, 2003, to phase out their excep­tions for manufacturing. As
of 2006, three continu­ing exceptions remained on that list.
Cambodia, Laos, and Vietnam have until 2010 to phase out their 28
exceptions for manufacturing.

Exceptions in "sensitive areas" are not required to be phased
out but are to be reviewed and phased out if and when the
governments are ready. As of 2006, the list of such sensitive
sectors contained 148 measures in manufacturing.[23]

Over and above both of these categories, there is the General
Exception List, which covers "indus­tries and investment
measures that cannot be opened up for investment or granted
national treat­ment because of reasons of national security,
public morals, public health or environmental protec­tion."[24]
For these sectors, not only is there no requirement that they
ultimately be phased in, but there is no requirement that they be
considered for inclusion in the AIA.

In 2004, a report by the well-respected Thailand Development
Research Institute shed some light on how an agreement intended to
open up intraregional investment has managed to fall so far
short:

[S]ome member countries list all manufac­turing industries
in the negative list.... Other member countries, including
Thai­land, simply reproduce the list of restric­tions under
current laws or regulations and compile them into the sensitive
list, which require occasional review but no phasing-out
commitments.[25]

On the positive side, across the industries cov­ered by the
AIA, 14 exceptions on the original lists have been phased out,
while another 51 have been transferred from the sensitive list to
the phase-in list. However, if the purpose of the AIA is to create
an open investment environment across ASEAN, the limited coverage,
exceptions, and progress to date are major problems. As a result,
after 10 years, the agreement "has not had a discernable effect on
FDI inflows."[26]

Fast-Tracked Priority Sectors. In 2004, ASEAN singled out
11--later expanded to 12--sectors for integration.[27] They were
fast-tracked in the context of full economic integration by 2015.
The priority sectors are agro-based products, automotives, e-ASEAN,
electronics, fisheries, health care, textiles and apparel,
wood-based products, rubber-based products, tourism, air travel,
and logistics. In 2004, these sectors accounted for more than 50
percent of intra-ASEAN trade. The ASEAN-6 (Brunei, Indone­sia,
Malaysia, the Philippines, Singapore, and Thai­land) were to
eliminate all import duties in these areas by 2007, and the other
ASEAN members were to eliminate them by 2012. This constituted an
acceleration of their AFTA commitments by three years. Beyond
tariffs, a number of other impedi­ments to trade were targeted
for elimination includ­ing NTBs associated with product
standards and regulations, testing certification, investment
facilita­tion, and overlapping authorities at the products'
points of entry.[28]

Progress in meeting these commitments has been broadly
characterized as "far from complete and generally slower than
anticipated."[29] One detailed study criticized compliance
in removing NTBs in these sectors as follows: "[NTBs] continue to
exist in all priority sectors in all ten countries, and there is no
evidence that their height or incidence has declined."[30]
The same study characterized liberal­ization in the priority
service sectors as "extremely low" and the NTBs as "sizable."

ASEAN Economic Community Blueprint. On November 20, 2007,
ASEAN leaders signed the Declaration on the ASEAN Economic
Community Blueprint. Conceptually, the blueprint brings the
constituent parts of the AEC, which includes the above-referenced
agreements and other commit­ments, together with measures to
deepen integra­tion. It also features a master implementation
plan. The blueprint is an admirable effort to compile and organize
the AEC task list.

Among its positive details, the blueprint pro­vides for a
review of both the ASEAN Investment Area and a long-standing
agreement that specifically provides investment protection.[31] It
aims to bring the two together in a new stronger, inclusive
agree­ment called the ASEAN Comprehensive Investment Agreement.
The blueprint places renewed focus on completely removing NTBs. It
also initiates a regional discussion on competition
policy--some­thing that most ASEAN members lack.[32]

These are excellent initiatives. ASEAN's recom­mitment to
its objectives is an encouraging demon­stration that it
recognizes its shortcomings. Better organizing them is some
indication that it takes its commitments seriously. Yet until it
actually implements these commitments, the blueprint is just
another ASEAN document. The AEC's 2015 deadline offers a bright
benchmark against which progress can be measured.

The ASEAN Charter. ASEAN leaders well know that a
blueprint alone will not lead to economic integration and the
economy of scale that they need to stay competitive. ASEAN needs to
find a "new ASEAN way"[33] that is rule-based and governed by
stronger institutions. Hadi Soesastro, executive director of the
Centre for Strategic and International Studies in Indonesia, has
noted:

There is no point in pursuing an advanced and demanding notion
as an AEC without deeper and testable commitment of the Member
States and stronger institutions or a detailed treaty from the
outset. Without endowed ASEAN institutions, without a treaty,
without transfer of powers, and with­out any budget, one should
not expect a credible ASEAN Economic Community to emerge.[34]

Hence, in 2005, ASEAN agreed to establish an organizational
charter--something ASEAN had been without since it was founded in
1967. An Eminent Persons Group (EPG) was established with a
man­date to make recommendations for the charter. The
recommendations were made on schedule, and a charter was drafted
and approved on schedule on November 20, 2007, in Singapore.

The Singapore summit was overshadowed in the international press
by concern about repression in Burma and ASEAN's failure to address
effectively what even its own members termed revolting[35]
behavior by one of its member countries. Accord­ingly,
criticism of the charter focused largely on ASEAN's impotence in
dealing with repression in Burma and the irony that the historic
charter required the signature of the miscreant regime.[36]

The focus on Burma was fair. The violent crack­down on
pro-democracy demonstrators in Septem­ber 2007 and the manner
in which the ASEAN heads of state handled it two months later cast
doubt on ASEAN's commitment to its own princi­ples at the very
time when it was enshrining those principles in the charter. One of
the charter's pur­poses is "to strengthen democracy, to enhance
good governance and the rule of law, and to promote and protect
human rights and fundamental free­doms."[37] ASEAN's failure
to deal effectively with such a glaring breach of its principles as
the Septem­ber events in Burma raises serious doubts about
whether or not the ASEAN Charter can provide the basis for forging
a regional community.

If ASEAN finds a way to address this concern, the charter does
contain some of the seeds for an effective institution. ASEAN
largely adopted the EPG's recommendations. The charter creates a
streamlined structure that makes inherent good sense and should
help ASEAN to monitor and implement its various plans and road
maps. More frequent meetings of its leaders should help ASEAN to
shoulder more responsibility for out­comes and process. The
creation of a formal appeal process for non-compliance with
agreements, enshrining the principle of ASEAN-X, and
endorse­ment of dispute settlement and arbitration are all very
positive signs.

On the downside, the charter does not allow appeal to majority
vote as recommended by the EPG. Instead, the charter reinforces the
principle of "consultation and consensus" in ASEAN decision making,
which has historically prevented it from making the tough
decisions. Disputes that cannot be worked out using current
procedures can be referred to the ASEAN heads of state. However,
referral to the heads-of-state level will likely be seen as a
"nuclear option." There is the distinct risk that decisions will
remain unresolved indefinitely out of respect for the offending
parties' sensibilities and that the dispute settlement process will
go unused. In the event that a decision does reach the heads of
state, they will be sorely tempted to avoid an embar­rassing
confrontation by delegating the decision back down to a lower level
without making a final determination.

The EPG also recommended enforcement mech­anisms and
penalties including "suspension of rights and privileges," but not
expulsion. However, the current charter does not include these. As
regards ASEAN's finances, the EPG recom­mended--and ASEAN
accepted--continued appli­cation of "equal contribution" to the
ASEAN budget. This means that the poorest and the richest make the
same level of financial contribution, effec­tively capping
contributions at the lowest level and handicapping an organization
that is already woe­fully short of needed resources.[38]

At this point, the charter appears to lack at least two of the
four criteria that Dr. Soesastro laid out in 2005: It does not
provide for an adequate bud­get, and it does not transfer
enforcement power. The charter is a living document, open to review
and amendment. Time and the ratification process will tell whether
the ASEAN Charter marks a watershed in ASEAN's history or is just
another document that bestows legal personality on ASEAN and makes
ASEAN a more efficient struc­ture but does little else.

Ultimately, even with the charter, economic integration comes
down to political will. Without the political will, ASEAN economic
integration will not occur.

Economic Freedom in ASEAN

ASEAN may not have achieved the basis for effective management
of its economic commit­ments, yet that is only half of the
battle. Any review of ASEAN's ground-level economic environment
points to the continuing need for vision.

Enhancing economic freedom is crucial to eco­nomic
development and sustained prosperity in today's increasingly
integrated global market. Eco­nomic growth and prosperity
depend on maintain­ing and improving an environment in which
entrepreneurial activities and innovation can flour­ish.
Economies with higher degrees of openness and flexibility benefit
from the free exchange of com­merce and thereby enjoy
sustainable economic growth and prosperity.

The Index of Economic Freedom, published by The Heritage
Foundation and The Wall Street Journal, systematically and
empirically documents this rela­tionship by evaluating
countries' economic freedom based on such things as ease of doing
business, tariff and non-tariff barriers, property rights,
corruption, and investment regimes. Each year, it uses data from
internationally authoritative sources--the Interna­tional
Monetary Fund, World Bank, World Trade Organization, Transparency
International, and oth­ers--to calculate a economic freedom
rating for each country.

The Index paints a disparate, disappointing pic­ture
of ASEAN's economy. Each ASEAN country's overall score and scores
for each of the 10 eco­nomic freedoms are presented in Table 1.
The scores range from 0 (completely repressed) to 100 (completely
free).

Chart 2 compares the simple average economic freedom score of
ASEAN over the past decade with the averages for the Asia-Pacific
region and the world. ASEAN's economic freedom score has been
stagnant and below both the world average and the Asia- Pacific
average. ASEAN's 2008 average economic free­dom score is 57.9,
which is below both the world average score of 60.3 and the Asia-
Pacific score of 58.7.

ASEAN performs considerably better than the world average only
in fiscal freedom and government size. (See Chart 3.) The high
scores in these two freedoms reflect that the ASEAN governments
have more fis­cal policy options at their disposal. However,
ASEAN's overall economic freedom is severely hampered by lack of
other freedoms, particularly busi­ness freedom, investment
freedom, financial freedom, freedom from cor­ruption, and
property rights.

Business Freedom. ASEAN's busi­ness freedom score is
58.3, or 4.5 percentage points below the world average of 62.8
percent. Business free­dom is a measure of how free
entre­preneurs are to start businesses, how easily they can
obtain licenses, and how easily they can close a business.
Impediments to any of these three components deter business
activity and, therefore, job creation.

Trade Freedom. ASEAN'S trade freedom score is 70.7, lower
than the world average score of 72. ASEAN's total trade with the
world is more than $900 billion. Its weighted average tar­iff
rate is around 7.2 percent, which is lower than the global average,
but non-tariff barriers such as quotas, bur­densome regulations
and standards, and bureaucratic delays still signifi­cantly
impede open commerce.

Fiscal Freedom. ASEAN's fiscal freedom score is 79.9,
which is 5 points higher than the global average score of 74.9. The
top tax rate on individual income averages around 32 percent, and
the top tax rate on corporate income averages around 28
percent.

Government Size. ASEAN's score on government size, which
measures government spending as a percent­age of GDP, is 89.6.
This is consider­ably higher than the global average score of
67.7. However, this high score does not mean that the ASEAN
economies enjoy less government intervention. Government
intervention in the economy is also reflected in investment and
financial freedom scores and in other freedom scores.

Monetary Freedom. ASEAN enjoys a high level of monetary
stability with a monetary freedom score of 72.7, which is slightly
lower than the global aver­age. The ASEAN economies' inflation
rates have been moderate despite recent inflationary pressures from
China. However, many ASEAN member econ­omies maintain price
controls on certain commodi­ties through government
intervention.

Investment Freedom. Capital flows are still severely
restricted in ASEAN. ASEAN's average financial freedom score is
36.7, which is 13 points lower than the global average. Only
Singapore, with a score of 80, enjoys high investment freedom. Most
ASEAN countries are significantly deficient in investment freedom,
with scores of less than 50, which means that their overall
investment climates are dampened by government restrictions.

Financial Freedom. Openness of ASEAN's bank­ing and
financial system scores 37.8. Many financial institutions are still
controlled by the governments de­spite measures to strengthen
legal systems, promote more transparent regulatory systems, and
improve effective governance in capital markets. Burden­some
and inconsistent banking regulations also re­duce opportunities
and restrict financial freedom.

Property Rights. Strengthening property rights is still a
work in progress. ASEAN scores lowest in property rights with a
score of 34.4. This is more than 10 percentage points lower than
the world average. Although Singapore strongly protects property
rights, earning a score of 90, most ASEAN countries score less than
50.

Freedom from Corruption. ASEAN's score of 35.7 on freedom
from corruption indicates that many ASEAN economies still suffer
from persistent and systematic corruption. Regrettably, they have
shown little progress. Singapore scores over 90, Malaysia scores
50, and the others have scores below 40. Freedom from corruption is
ASEAN's sec­ond-lowest score among the 10 factors.

Labor Freedom. ASEAN enjoys a relatively high level of
labor freedom of 63.1 percent, reflecting fewer restrictions on
wages, hours, and hiring and firing workers. The world average
score for labor freedom is 62.1.

Integrating Vision and Management

The record shows a few things very clearly. First, ASEAN
is lagging in its effort to create an economic community. Without
fundamental changes, it will likely not reach its goals by 2015.
Second, to the extent that the economies have benefited from
cross-border economic activity, it has been driven by market
forces. No evidence suggests that the offi­cial ASEAN processes
are significantly driving eco­nomic integration. Third,
ASEAN as a whole has a long way to go on its road to economic
freedom.

The management task of achieving an ASEAN Economic Community by
2015 is massive. How­ever, the lack of resolve in ASEAN's
vision is greatly complicating matters. The lack of progress in
ASEAN's landmark economic agreements is a symp­tom of a bigger
problem, and the ratings in the Index of Economic Freedom
identify the causes. Govern­ments, sectors, and businesses
acting in their most narrowly defined interests have hampered
ASEAN's development and pose the greatest threats to realiz­ing
an ASEAN Economic Community.

Better management and more resources are needed, but only a
resolution of vision will lead ASEAN to its goals. In turn,
commitment to reform at the country level will make the management
task easier. When fewer areas of non-compliance need to be
addressed, the exceptions list goes away, transpar­ency is
improved, and tariffs and NTBs are removed, fewer things will need
to be managed. Managing commitments when they are being
energetically met is much easier than uncovering non-compliance and
enforcing or cajoling compliance. Addressing issues of economic
freedom will enable market forces to work effectively and to
support compliance with agreements intended to unleash them.

Why ASEAN's Economic Integration
Matters to America

U.S. interests in Asia begin with a stable, secure geopolitical
and economic order that is friendly to free commerce. Central to
this is an ASEAN that can confidently hold its own, particularly in
the face of China's incredible economic growth and rise as a global
power. ASEAN needs an integrated, liberal economy of scale to meet
the challenge.

Without energetic American engagement with ASEAN's integration
effort, there are two possible scenarios.

Scenario #1: ASEAN integration is achieved but remains
essentially incomplete and becomes a cover for closer political
association with larger regional economic powers. China, by virtue
of its large mar­ket, mesmerizing growth, and masterful,
full-range diplomacy, becomes the preeminent power in ASEAN's
economic calculations. Economic dynam­ics lead to political
pressures and identification, and ASEAN gradually loses its
historical global orienta­tion. The Asia-Pacific region
ultimately realigns in a way that squeezes the American
presence.

Scenario # 2: ASEAN integration fails, and the members
drift apart in pursuit of their individual interests. Without the
economic rationale to hold it together, ASEAN's political purpose
also fails. ASEAN has achieved its greatest success as a
politi­cal organization, mitigating conflict among its diverse
membership, serving as a united front in dealing with threats, and
providing a neutral forum for the interaction of Pacific powers.
Its demise would create a dangerous vacuum.

Neither scenario would be good for America. ASEAN is at a
crossroads. Its best future lies in cre­ating a compelling
economic story that can stand up to the scrutiny of investors and
encompass the dis­parate economies of the region in a
competitive, lib­eral economy of scale. The U.S. has a major
interest in helping ASEAN to reach this goal.

What the U.S. Should Do

The United States should:

Stabilize the American diplomatic commitment to ASEAN.
Despite the U.S. government's best efforts at publicizing its
interests and assets in ASEAN, there is a widespread perception
that America's commitment to the region is declining. The sporadic
involvement of the U.S. Secretary of State in the ASEAN Regional
Forum and the Pres­ident's recent cancellation of a
heads-of-state sum­mit with the ASEAN leaders have reinforced
this perception and set back two years of progress in U.S.-ASEAN
relations. Without high-level dem­onstrations of U.S. interests
in the region, Amer­ica's initiatives and advice are less
effective, and the credit for its assistance will remain
unclaimed.

Intensify U.S. Trade Representative involve­ment with
the ASEAN economic ministers and associated forums. Ambassador
Susan Schwab's resumption of dialogue with her ASEAN
coun­terparts two years ago is an important part of U.S.
engagement. USTR officials have worked extensively with their
counterparts. The consis­tency of this commitment is
critical.

Expand the U.S.-ASEAN Trade and Invest­ment Framework
Arrangement (TIFA) work program to address non-tariff barriers,
barriers in cross-border services trade, and investment issues. In
2006, the U.S. and ASEAN signed a TIFA that established a process
for addressing ASEAN-wide trade issues. The initial work
pro­gram focuses on harmonizing select industry standards and
facilitating trade flows. Progress has been made in these areas.
The agenda should be expanded to include new areas that are
critical both to current ASEAN commitments on inte­gration and
to American trade and investment.

Stay focused on an eventual U.S.-ASEAN free trade agreement
(FTA). The TIFA is an excellent plan B, and it can also help to
lay the ground­work for an FTA. Ultimately, however, no
instru­ment will drive ASEAN integration along a gold standard
track like an FTA with the United States. Reconciling and
harmonizing regulations across ASEAN for negotiations with the U.S.
and ultimately committing to liberalization in the context of a
WTO-compliant, enforceable FTA would decisively lock in the
economic reforms at the heart of ASEAN integration. The U.S. will
not--and should not--negotiate an FTA that includes the Burmese
junta, but it also should not allow Burma to block all forward
progress on U.S.-ASEAN economic relations.

Continue looking for bilateral FTA opportuni­ties.
Concluded broadly through the region, individual FTAs with the U.S.
would commit the ASEAN countries to a common gold standard that can
be applied on an intra-ASEAN basis. The U.S. should try to advance
bilateral negotia­tions already opened (Thailand and Malaysia)
and look for new opportunities, both bilateral and
plurilateral.

Fully fund the ASEAN Development Vision to Advance National
Cooperation and Economic Integration (ADVANCE). ADVANCE is a
five-year, $150 million project to strengthen ASEAN and support its
integration. It contributes most of the nuts and bolts to the
ASEAN-U.S. Enhanced Partnership inaugurated by President George W.
Bush in 2005 to provide a compre­hensive framework for the
U.S.-ASEAN relation­ship. The current level of funding is a
good start, but the U.S. could do much better at matching its
vision with resources.

Conclusion

ASEAN's ambition is clear, its record in imple­menting
agreements to facilitate economic integra­tion is spotty, and
its commitment to economic freedom is subpar. ASEAN requires a
resolution of vision to get to ASEAN Economic Community by 2015. It
also needs the tools and resources to man­age the undertaking
effectively.

The U.S. cannot give ASEAN the political will that it needs, but
by being involved in ASEAN's economic life at every important
level, the U.S. can ensure that its advice and concerns are taken
into account. The U.S. can also engage at the technical level in a
way that enables the group to meet its objectives.

Walter Lohman is Director
of the Asian Studies Center and Anthony B. Kim is a Policy
Analyst in the Center for International Trade and Economics at The
Heritage Foundation.

[38]"The [European] Community administrative
apparatus is beyond comparison with that of ASEAN (21,000 European
officials as opposed to 177 in ASEAN, of whom 135 are recruited
locally and only 42 due to their professional capacity." Laurence
Henry, "The ASEAN Way and Community Integration: Two Different
Models of Regionalism," European Law Journal, Vol. 13, No. 6
(November 2007), p. 862.

Share

Enhancing economic freedom is at the heart of the Association ofSoutheast Asian Nations' economic vision. By demonstrating serious,sustained interest in ASEAN's economic life, the U.S. can ensurethat its advice and concerns are taken into account. The U.S. canalso engage at the technical level in a way that enables the groupto meet its objectives.

Key Points

1 An ASEAN that can confidently hold its own
in the face of China’s incredible economic
growth and rise as a global power is central
to American interests.

2 The U.S. should stabilize the American diplomatic
commitment to ASEAN with consistent
heads-of-state level diplomacy and
reliable Cabinet-level participation in the
ASEAN Regional Forum.

3 USTR should intensify its dialogue with the
ASEAN economic ministers and expand the
Trade and Investment Framework Arrangement
work program to address non-tariff
barriers, barriers in cross border services
trade, and investment issues.

4 The U.S. should advance stalled FTAs with
Malaysia and Thailand and lay the groundwork
for other FTAs in the region with an eye
to eventual conclusion of a U.S.-ASEAN FTA.

5 The U.S. should fully fund the ASEAN Development
Vision to Advance National Cooperation
and Economic Integration (ADVANCE), a fiveyear,
$150 million project to strengthen ASEAN.

Key Points

An ASEAN that can confidently hold its own
in the face of China’s incredible economic
growth and rise as a global power is central
to American interests.

The U.S. should stabilize the American diplomatic
commitment to ASEAN with consistent
heads-of-state level diplomacy and
reliable Cabinet-level participation in the
ASEAN Regional Forum.

USTR should intensify its dialogue with the
ASEAN economic ministers and expand the
Trade and Investment Framework Arrangement
work program to address non-tariff
barriers, barriers in cross border services
trade, and investment issues.

The U.S. should advance stalled FTAs with
Malaysia and Thailand and lay the groundwork
for other FTAs in the region with an eye
to eventual conclusion of a U.S.-ASEAN FTA.

The U.S. should fully fund the ASEAN Development
Vision to Advance National Cooperation
and Economic Integration (ADVANCE), a fiveyear,
$150 million project to strengthen ASEAN.

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